The US 10-year Treasury yield surged to its highest level since 2002, climbing as high as 5.342% and crossing its 2007 peak as investors sold government bonds on concerns over inflation, higher crude prices and the possibility that US interest rates may stay elevated for longer. According to The Financial Express, the global benchmark posted its biggest quarterly rise this century in the third quarter, with the sell-off creating significant pressure across global markets. The development comes days after the 30-year US bonds hit a 24-year high, with global government bonds recording their worst quarter since 2024 according to a Bloomberg index. The UK 30-year bonds also pushed to 6% for the first time since 1998, a level expected to be seen in the US treasury market, as cited by some analysts and investors. As per The Financial Express, French 10-year borrowing costs also hit their highest since 2002 on Thursday, trading close to the symbolic 5% level after turning in its worst quarterly performance since 1987 between June and September. A renewed rise in oil prices on US-Iran tensions is driving yields higher as elevated inflation leaves traders braced for more interest rate hikes, adding to concerns about governments' rising borrowing and spending needs.
US Treasuries experienced significant volatility on Thursday, with 10-year yields initially climbing to 5.34% before rebounding to 5.24% by mid-day, down about 5 basis points from earlier highs. According to Business Standard, the bounceback gained momentum after the Institute for Supply Management's manufacturing activity gauge fell 0.1 point to 54.5, below the median estimate in a Bloomberg survey of economists. The two-year yield also dropped 11 basis points to 4.78%, marking a sharp reversal from earlier session highs. As per RBC Capital Markets strategist Izaac Brook, "Today is very much not about US fundamentals and US data. Everybody is looking at overseas yields and saying, 'You need to move into safety, buy Treasuries." The moves marked a respite from the downturn that has been racing through markets for weeks as the oil-price shock of the US-Iran war ripples through the global economy. The rebound was supported by flight-to-quality spillovers from the ongoing selloff across France and Italian sovereign debt, which continues to underperform bunds and Treasuries.
The global bond sell-off has created significant pressure on emerging markets, with Indian equities, bonds and the rupee bearing the brunt of the impact. As per The Economic Times, investor wealth worth nearly ₹10 lakh crore was wiped out as the sell-off spread across sectors, with the Sensex falling up to 1,200 points during intraday trade on Thursday and the Nifty slipping below key levels. The Sensex settled 571 points lower and the Nifty ended at 22,422, recovering some of its earlier losses. The rupee also weakened on Thursday, tracking losses in Asian currencies as the dollar index rose to a three-month high on the back of higher US Treasury yields. The Indian currency slipped to 95.98 per dollar, with state-run banks likely selling dollars to limit losses near the 96 level. The sharp rise in US yields also strengthens the dollar, putting pressure on emerging market currencies, raises imported inflation and makes foreign debt more expensive for companies and governments. For India, the impact is sharper because elevated crude prices can widen the current account deficit and add pressure on the rupee.
A surge in bond sales to fund AI investments is another factor pushing up bond yields, with five of the biggest AI hyperscalers — Alphabet, Amazon, Meta, Microsoft and Oracle issuing $220 billion of debt already this year as they fund investments in data centres and models, according to LSEG data. This represents more than double last year's total figure, with more issuance expected in coming months. Analysts point to the laws of supply and demand: if there is a jump in the need for borrowing, lenders can demand higher interest rates, pushing up yields. The US debt pile has topped $40 trillion, while debt as a share of economic output is at or above 100% across the G7 group of major economies, bar Germany. Major economies now spend more on interest expense than the world invests in either AI, defence, or clean energy, according to the Institute of International Finance. The rate on the most popular US home loan rose last month to its highest in more than two years and pierced the 7% level for the first time since the first week of President Donald Trump's current term in office.
Goldman Sachs International co-CEO Anthony Gutman has urged governments to reduce budget deficits to ease borrowing costs and bring greater stability to bond markets, advocating for tighter fiscal discipline and stronger, sustainable economic growth. In an interview with CNBC's Squawk Box Europe, Gutman said rising sovereign borrowing costs were becoming a growing concern for Western economies, citing recent swings in US Treasury and French government bond markets. "We need lower fiscal deficits, and we need more durable economic growth," Gutman said, identifying the two as key requirements for addressing the pressure in government debt markets. Despite September's softer-than-expected US jobs data, Treasury yields climbed on Friday, with the 10-year US government bond yield easing by around 1 basis point to 5.2581% by Monday. French sovereign debt came under renewed pressure, with the yield on the 10-year government bond climbing by over 1 basis point to 4.8812%, as investors remained wary of the country's strained finances and unsettled political landscape. Gutman noted that governments faced difficult trade-offs as they sought to balance economic support with the need to control borrowing and debt levels, with the existing fiscal backdrop making it harder for policymakers to tackle these challenges.
